Marketing stifles online banking

Banks offering online services need to polish their pitch for customers, according to a new study.

Most people don't even know their banks offer Net services, according to a report issued by market research firm FIND/SVP (FSVP).

Based on telephone interviews with some 1,000 PC owners and 200 people who said they plan to buy a PC within the next six months, the online banking forecast said banks are "just beginning to climb the learning curve when it comes to marketing online services to consumers."

The research firm said banks need to get out a bigger and clearer message of how people can use the services to do much more than check balances, transfer funds, and pay bills. The study reports that electronic banking also offers a "better way" to manage budgets and balance checkbooks, and serve as a valuable online extension to personal finance and accounting software that many computer-savvy consumers already use.

Yet the issue of promoting online sites is a sensitive one for many bank executives, who are faced with the delicate balancing act of promoting online services without alienating Net-phobic customers.

"The greatest challenge is to market this service to a group of folks without alienating our traditional customers," Michael Fitzgerald, senior vice president at Salem Five, a bank in Salem, Massachusetts. Fitzgerald spearheaded online banking a few years ago and has seen it grow into a thriving business without moving existing customers unwillingly onto the Net.

Indeed, Fitzgerald said the bank has been careful not to augment fears that online banking will eventually lead banks to close the doors of existing branches. Salem Five has opted not to advertise inside any of its brick-and-mortar branches. Instead, the bank has relied on ads in national computer publications, bringing business into the bank it would otherwise not have attracted, he said. Eight of every ten online customers are out-of-staters, and some are Americans living in foreign countries, he added.

"We saw an opportunity to capture some people's business by addressing their lifestyle," said Fitzgerald. His bank's virtual branch is one of nine bank branches. It has grown to have more customers than some of the company's office branches yet attending to them requires a much smaller staff--two full-time employees--and considerably lower costs.

However, the time may have come to introduce a more mainstream public to Internet banking, suggests Ira Morrow, a research director at Gartner Group. He points to the estimate of 1 million online customers, compares it to the 33 million Americans reported to have PCs at home, and concludes that banks and software vendors could do a better job of promoting electronic services.

"There is huge but largely untapped potential here," he said, lamenting that online banking "hasn't been going anywhere. There are not enough users and not enough value" offered online to convince consumers to change their routines.

Yet all that may soon change once new software supporting Open Financial Exchange (OFX) specifications come to market this fall. OFX is a proposal by the three big consumer banking software providers--Microsoft, CheckFree, and Intuit--to provide a common pathway for customer client software to access account information stored on bank databases.

Morrow said once the OFX spec is set, independent software developers will begin rolling out software that will expand the kinds of transactions consumers can conduct at the virtual banks. For instance, consumers can now pay bills online, but soon they will also have the option of receiving bills online, streamlining the payment process, and reducing the need to keep records both on paper and online, Morrow said.

Salem Five is among the banks that are passing on the savings to customers by not charging a monthly fee to online customers. But some banks charge as much as $15 per month. The average is between $3 and $4 a month, compared with many traditional accounts that have no monthly fees at all, analysts said.

The FIND survey reported that 46 percent of those surveyed said they are looking for bundling of banking, bill paying, and brokerage services and are willing to pay as much as about $10 a month for that kind of convenience, FIND spokesman Stuart Gibbel said.

The finding is at odds with the views of many analysts and banking industry insiders, who maintain that consumers have been reluctant to pay for services that they can walk into a bank and obtain for free.

Many observers said the existence of fees along with poor marketing are holding down the number of online customers. Banks also may be targeting the wrong people, FIND's survey suggests. Banks should target women, who often handle household finances yet are less aware of the online options than men, according to the survey. "They are a natural," said Gibbel.

The report also indicated that people are worried that online banking could result in a loss of privacy much more than they are worried about falling victim to fraudulent business schemes on the Net.